In the Hitler snake pit it takes strong personality to carve out resources and once General Wever perished the strategic bomber lost its best potential advocate. However, the decision to focus on lighter bombers was not stupid, given that for Germany any bomber offensive would either cross hostile France to reach the UK or only be channeled out over the North Sea, thus one can appreciate a pessimistic view of strategic bombing for Germany to wage. It might be useful versus France, but then medium bombers likely seem adequate and beyond the border region France is not target rich anyway. Given all the competing needs to rearm the decision was not unforgivable. Until one has France, the Low Countries and Norway in the bag, big bombers seem a waste of effort. Even Herr Hitler had no such foresight.
Personally I can see how the rockets likely looked far better long-term given they are immune to intercept, require no escorts and if cheap enough in mass have about the same effect. Yet both strategic bombing and the rockets both proved to be far less than promised until far more mature. Germany might have been better served improving bombs rather than the bomber, they certainly seemed to get moving that direction with Air-to-Ship missiles that later showed accuracy over mass to good effect.
My opinion is that had the war settled into a UK versus Germany strategic bombing war then both sides effectively create trench warfare in the sky only with destruction and death in depth, a stalemate with increasing body count. The RAF hurt Germany but I have yet to find anyone who argues that bombing was winning the war until the USAAF poured into the complimentary daylight campaign and even that taxed the USA's resources. Overall Germany likely needed the long range heavy bomber more in the East but as others observe the gamble was a fast war fought tactically, never a true strategic war, especially not fought with attrition. The best outcome for Germany was a better Battle of Britain overall, not dependent on strategic bombers, far greater numbers of submarines early and/or surface raiders, and being in a position to offer peace that was credible, and I have no faith Hitler was going to achieve that post-Munich.